Last year Jon’s lender automatically capitalised a small shortfall, adding £30 of interest over the term and 18p to the monthly payment. A second automatic capitalisation would add £25 of interest over the term and 15p a month. May the lender apply it automatically?
MCOB 13.3.4AAR measures materiality on a capitalisation ‘either on its own or taken together with previous automatic capitalisations’. Together these add £55 of interest over the term, which meets the £50 limit, so the second cannot be automatic, even though the monthly rise (33p) is under £1. Either limit is enough to make it material. Agreed capitalisation, rather than automatic, remains possible.
Testing each capitalisation separately, or needing both limits to be hit.
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